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Retail “sale” advertising, perceived retailer credibility, and price rationale
Retail “Sale” Advertising, Perceived Retailer Credibility, and Price Rationale
GEORGE S. BOBINSKI, JR. Binghamton University
DENA COX and ANTHONY
COX
lndiana University
Retailers often advertise products at “reduced” prices. Past research has suggested this is an effective way to appeal to consumers; advertising
but recent evidence indicates growing consumer mistrust of this type of
claim. This paper presents
an experiment
that suggests consumer perceptions
of retail
price reductions may depend on the rationale the retailer provides for the reductions. Directions for future research are discussed.
INTRODUCTION
Reduced Price Advertising
and Retailer Credibility
For years, retailers have periodically advertised their merchandise at reduced or “sale” prices. However, recently the popularity of this practice has grown tremendously. As reported in the Wall Street Journal (Agins, 1990, p. B 1): “The number of sales and markdowns at retail stores has exploded in recent years .. . It seems everything is on sale these days ...” Even traditionally full-price retailers (e.g., department stores) now nearly continuously advertise sharp reductions from their “regular” prices. For example, Ortmeyer (199 1) reports that over 60% of department store sales volume is sold at “sale” prices. Most academic research has suggested that the presence of an external reference price (e.g., a “regular” price) enhances the attractiveness of the advertised offer (Lichtenstein, Burton and Karson, 1991; Urbany, Bearden and Weilbaker, 1988; Bearden, Lichtenstein and Teel, 1984; Blair and Landon, 1981; Della Bitta, Monroe and McGinnis, 1981), perceptions of low store-wide
George S. Bobinski, Jr., Binghamton University, School of Management, Binghamton, Dena Cox and Anthony Cox, Indiana University, Graduate School of Business, Department West Michigan, Indianapolis, IN 46202-5 15 1. Journal of Retailing, Volume 72(3), pp. 291-306, ISSN: 0022-4359 Copyright 0 1996 by New York University. All rights of reproduction
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NY 13902-6015. of Marketing, 801
in any form reserved.
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prices (Cox and Cox, 1990), and actual product sales (Rajendran and Tellis, 1994). As Rajendran and Tellis note, external reference prices can provide consumers with a standard (representing either past prices for the offered product, or current prices of competitive products) against which they can more easily judge the attractiveness of the offer price. However, as reductions from regular price become increasingly commonplace, an additional issue arises: the credibility of advertisers’ price claims. Advertising regulators have recently uncovered myriad cases of deceptive reference prices (Schwadel, 1990). Further, there are hints that “sale” advertising is meeting with growing consumer skepticism. Agins (1990) observes that consumers appear “... perplexed about pricing tactics and wondering whether they are really getting bargains.” Results of the Yankelovich Monitor suggest that consumers are increasingly skeptical of supposed “regular” prices, feeling that “if you wait long enough, you can always buy a product on sale” (Hayward, 1988). One retail CEO recently complained to the authors about stores that “play games” with reference prices, and expressed concerns over the long-term impact on retailer credibility. This concern echoes Pierre Martineau’s (1957) observation, made nearly 40 years ago:
For all of the retailer’s remarks that his advertising is measured strictly in terms of immediate sales . it is perfectly clear that every ad he runs is an institutional ad. Whether he realizes it or not, all of his advertising is creating an image for his store .. .
Only a few studies have examined the impact of “sale” advertising on retailer credibility. Lichtenstein and Bearden (1989) found that a retailer employing an implausibly high reference price was perceived as less trustworthy than one using a plausible reference price. In addition, they manipulated two contextual variables: the distinctiveness of a store’s reduced-price advertisement (i.e., the extent to which such price promotions were unusual among the advertiser’s competitors) and its consistency (i.e., whether the advertiser frequently engaged in similar price promotions). They hypothesized that the store’s credibility would increase with offer distinctiveness (since distinctive offers were expected to be harder for the consumer to dismiss as something “all stores claim”) and decrease with ad consistency (since repeated use of the same discount may cast doubt on its legitimacy). However, while these contextual variables influenced consumers’ perceptions of the immediate advertised offer, neither affected the store’s perceived credibility. A more recent study of retail price advertising (Lichtenstein et al., 1991) also examined store credibility effects. This study included a variety of reference price manipulations, as well as a control condition in which no reference price was presented. They found (p. 389) that this “control condition resulted in more favorable source credibility perceptions” than did any of the reference price conditions.
The Role of Price “Rationales”
Our study extends previous research on how retail “sale” price advertising affects retailer credibility. Like Lichtenstein, Burton and Karson (1991), we examine the impact of sale
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price level, the use of a reference price, and contextual cues on perceptions of both the advertised offer and the store’s credibility. However, the nature of the contextual cue we examine differs from those employed in their study. Lichtenstein, Burton and Karson manipulated cues by which buyers could judge whether the offer price was truly lower than “normal” prices for this item: i.e., information on the past prices offered by the current advertiser, and the prevailing prices charged by competitive dealers. Our study, in contrast, provides consumers with cues regarding the reasons or circumstances motivating the seller to reduce its price. Specifically, our study focuses on the rationale the retailer provides for reducing the price of the advertised product. This contextual cue has not been examined in prior empirical studies, yet it is employed in a surprisingly large number of retail advertisements. In examining a large number of retail “sale” advertisements, we found that many offer a rationale or explanation for the low-price offer. For example, some stores claim that their low costs permit them to “pass the savings on” to their customers; others state that they are lowering prices to “clear” end-of-season merchandise, to celebrate a holiday or store anniversary, to raise quick cash, or even because of the temporary insanity of the owners (e.g., “Midnight Madness” sales). Given the pervasiveness of this advertising practice, one is prompted to ask: why do stores offer such “price rationales” and what is their effect on buyer perceptions? Retailers may feel that consumers offered an unusually low price (having learned from an early age that “you only get what you pay for” and “you can’t get something for nothing”) will seek to explain this apparent windfall. Given consumers’ general suspicion regarding sales (see e.g., Fry and McDougall, 1974), there is a danger that their explanations may reflect negatively on the advertised products (e.g., that the merchandise is of inferior quality) or the store (e.g., that the store engages in deceptive pricing practices). Several recent pricing studies suggest that consumers’ reactions to a price change depend not just on the magnitude and direction of the change, but on buyers’ perceptions of the seller circumstunces and motivations that led to it. For example, both Kahneman, Knetsch and Thaler (1986) and Kalapurakal, Dickson and Urbany (I 991) examined how consumers’ perceptions of the “fairness” of price increases were influenced by the circumstances that led to them. For example, Kahneman et al. found that buyers typically perceive a given price increase as “fair” if it is a reaction to an increase in seller costs, but as unfair if it is a reaction to increased consumer demand. Similarly, Lichtenstein, Burton and O’Hara (1989) examined how consumers’ attributions regarding a retailer’s motives for discounting a product influenced their attitudes toward the deal. They found, for example, that consumers had more negative attitudes toward the deal when they attributed it to the retailer’s desire to unload a difficult-to-sell product. In general, the results of these studies support Friestad and Wright’s (1994, p. 1,21) contention that ‘I... persuasion targets often have an interpretive orientation to the ads and sales presentations they observe,” and that these interpretations help consumers “... refine their product attitudes and attitudes toward the marketers themselves.” Viewed from a cognitive response perspective (see e.g., Petty and Cacioppo, 1981; Anand and Stemthal, 1990), consumers faced with a low price claim may generate counter arguments that diminish the impact of the message (e.g., “sure it’s on sale, but it’s probably leftover stuff . ..“). One way to reduce such counter arguments may be to preempt them, by providing consumers with a plausible rationale for the low price which does not reflect neg-
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atively on either the advertised offer or the advertising store. (See McGuire’s, 1964 discussion of the closely related concept of “inoculation” against negative arguments.) In order to assess the pervasiveness of price rationales, we examined retail newspaper ads appearing in five different metropolitan markets during three different months. The newspapers selected had average daily circulations ranging from 68,000 to 1.17 million readers. Surveying each newspaper over approximately ten different days, we found that price rationales occurred in a total of 188 advertisements. The most frequent price reduction rationales were that the store had an inventory overstock (95 ads), a holiday sale (41 ads), and that it was passing along a discount from the manufacturer (28 ads). For our experiment, we decided to include the inventory and manufacturer discount rationales, since these were two of the three most common rationales, and since each appears to contain a different connotation (e.g., an eagerness to reduce inventories may indicate something about the desirability of this merchandise). Since the motivation behind a holiday sale seemed particularly ambiguous, we chose not to include it in this study.
Hypotheses
This study examines how varying sale price levels, the use of reference prices, and lowprice rationales in a retail ad affect consumers’ perceptions of both the advertised offer and the credibility of the retailer. The first two hypotheses are based on past research findings discussed earlier (especially Lichtenstein, Burton and Karson, 1991). Hypothesis 1 essentially states that a much-lower-than-typical offer price will enhance consumer perceptions of the attractiveness of the offer and the price deal, and will have no impact on the perceived credibility of the store. Hypothesis 2 states that the mere presence of a reference price (even one that is typical of prices charged by local retailers) serves as an informational cue for consumers, that simultaneously evokes skepticism about the store and enhances perceptions that the consumer is getting a “deal.” This somewhat paradoxical prediction is based on the notion (introduced by Urbany, Bearden and Weilbaker, 1988) that consumers tend simultaneously to be skeptical of stores’ use of reference prices, and be influenced by them. The third hypothesis is based on our preceding discussion of price rationales: that a plausible rationale should reduce consumer skepticism regarding both the validity of the advertised deal and the trustworthiness of the retailer placing the ad. The fourth hypothesis predicts that some discount rationales will elicit more positive consumer reactions than others. Given past research on consumer price perceptions, one would expect the “volume cost savings” rationale to be particularly appealing to consumers. The experiments of Kahneman et al. (1986) suggest that buyers expect sellers to pass on higher costs in their prices (in order to preserve their “reference profit level”) but do not necessarily expect sellers to pass on cost savings in their prices; thus a seller who does so may be seen as exceeding buyer’s expectations for fair behavior. In the same context, Kalapurakal et al. (1991) note that “... buyers .. . may not know about the cost savings that are not passed on to them.” Thus, the seller who tells buyers about his cost savings, and passes them on in lower prices, may be seen as unusually forthcoming and generous. In contrast, the “inventory” rationale (“we don’t want to count it, so you save”) may be perceived less
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by consumers. First, it suggests that the seller’s price change is motivated by laziness (or perhaps a reluctance to pay inventory taxes), rather than a magnanimous desire to pass on costs savings to his customers. Second, this rationale may imply that the discounted merchandise is old, leftover or undesirable. The research of Lichtenstein, Burton and O’Hara (1989) suggests that this is one of the most important negative interpretations consumers may make of a discounted price. Thus, the formal hypotheses: Hl:
An extremely (vs. moderately) low sale price will a. increase attitudes toward the advertised offer and deal b. have no impact on the perceived credibility of the advertising store
H2:
The presence of an external reference price will a. increase attitudes toward the advertised ogler and deal, but b. decrease the perceived credibility of the advertising store.
H3:
The presence of a price rationale will increase both a. attitudes toward the advertised ofleer and deal, and 6. the perceived credibility of the advertising store.
H4:
The “volume” rationale, compared to the “inventory” rationale will more positively influence consumers’ a. attitudes toward the advertised offer and deal, and 6. the perceived credibility of the advertised store
METHOD
Our study used a 3 x 2 x 2 between-subjects experiment to examine the research issues discussed above. Each subject was exposed to one of twelve versions of a retail price advertisement for a fashion T-shirt. These twelve ads differed in terms of: (1) The rationale that was given for the price (no rationale; the “excess inventory” rationale; or the “volume purchase” rationale). (2) The reference price (either no reference price or a $20 reference price). (3) The selling price of the product (either $9.99 or $14.99).
Subjects
Volunteers were recruited from sophomore and junior management classes at an Eastern university. A total of 129 usable questionnaires were obtained. The subjects ranged in age from 19 to 30 with a mean age of 20.6. There were slightly more males than females in the sample (53% vs. 47%). Each subject was randomly assigned to one of 12 target experimental conditions, with between ten and twelve subjects per cell. It should be noted that this somewhat small cell size tends to limit the statistical power of ANOVA, increasing the possibility that a true group difference may fail to be detected, particularly for higher-order interactions.
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Stimuli
The stimuli were print advertisements for a striped T-shirt, which were designed expressly for this study. The product category was selected to be one for which both male and female college students would be potential customers. This was confirmed by our data, which indicated that 100% of the sample had at some time purchased a T-shirt. The ad was designed to be believable as a real retail advertisement, but not identifiable with any particular retail store in the area. Subjects were told that this ad had run in another area of the country and that the store name was being omitted. We did not want to have any carry-over effect of store name. In written post-experimental comments, no subject either questioned the legitimacy of the ad or identified it with any store. In the top half of each ad was a black and white photo of a man and woman both wearing the striped T-shirts. Beneath this was a description of the product and the sizes available. These features were common to all manipulations.
Independent
Variables
R~tionu~e~ Each ad either had no headline or had one of two low-price rationales displayed in a prominent headline above the picture of the T-shirts. The high volume rationale was: ‘“We purchased in high volumes and now we’re passing the savings on to you!” The sale-We don’t want to count it, so you inventory rationale headline was: “Pre-inventory save!” Half of the ads stated no reference price, and half stated that External Reference Price: the T-shirt was “regularly $20.” This reference price was determined in pre-tests, in which an independent set of subjects (n = 38) was shown the ad with no rationale or pricing information and asked, “What is your estimate of the typical price charged by local retailers for the T-shirts depicted in the advertisements when they are not being promoted?” The median response to this question was $20.00. Thus, the reference price used in our ads can be considered plausible to the subjects. Other researchers have determined that the plausibility of the reference price can have an effect on consumers’ perceptions (Biswas and Blair. 1991; Lichtenstein and Bearden, 1989). Sale Price: Half of the ads offered a discount of about 25% from the product’s expected price (as determined by the pre-tests mentioned above) resulting in a sale price of $14.99. An examination of retail adve~isements in this market revealed discounts in this range to be fairly common. The other half of the stimuli offered a sale price of $9.99, representing an unusually deep (about SO%) discount from the expected price of the product.
Dependent
Variables
After ad exposure, subjects reported their perceptions of the value of the advertised deal, their attitude toward the offer, and their perceptions of the store’s credibility.
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Monroe (1979) contends that in pricing studies, “attitude toward the offer” is a more relevant dependent measure than attitude toward the brand, since the former represents a more global assessment of the attractiveness of this product at this particular price. Thus we included a measure of attitude toward the offer, drawing on the scale used by Lichtenstein and Bearden (1989). This measure consisted of four 7-point semantic differential scales, each assessing the advantageousness of accepting the advertised offer (e.g., the advertised offer for the T-shirt is “very good/bad”; “very favorable/unfavorable”; “very advantageous/ disadvantageous”; “very beneficial/not beneficial”). This scale was internally consistent with a coefficient alpha of .86. Consumers’ perceptions of the value of the advertised deal have been measured in pricing experiments conducted by Berkowitz and Walton (1980) and Lichtenstein and Bearden (1989). Our measure of perception of value of the deal was similar to measures used by these authors. It consisted of four 7-point semantic differential scales assessing the value of the advertised sale price (e.g., the advertised shirt is an “excellentiad buy for the money”; the advertised shirt is offered at an “extremely fair/unfair price”; the advertised offer for the T-shirt represents “extremely large/no savings”; the advertised T-shirt is “extremely good/ not a good value for the money”). This scale had a coefficient alpha of .86. The distinction between attitude toward the offer and perceived value of the deal, while subtle, was confirmed in a variety of factor analyses. When all scale items were entered into factor analyses (using both orthogonal and oblique rotations), these two constructs always emerged as distinct factors, with each scale item loading on the expected factor. For this reason, as well as to maintain comparability to past studies (Lichtenstein and Bearden, 1992), “offer” and “deal” were treated as two distinct dependent variables throughout the analysis. Perceived store credibility was measured using scales similar to those used by Lichtenstein and Bearden (I 989). This measure consisted of five 7-point semantic differential scales rating the credibility or trustworthiness of the store advertising the shirt (e.g., “very I‘very dependable/undependable,” sincere/insincere,” “very honest/dishonest,” “very trustworthy/untrustworthy,” “ high credibility/low credibility”). The coefficient alpha for this measure was .9 1. After the dependent measures were collected, subjects responded to the open-ended question: “Why do you think the T-shirts were being promoted?’ The coding and analysis of this item are reported in the Results. The questionnaire also contained questions about another advertisement (intended to disguise the focus of the experiment) and demographic questions.
Procedure
Subjects were processed in small groups, and treatments were randomized within each group by prior shuffling of the experimental booklets. Each subject was randomly assigned a booklet containing one of the twelve target ads. Randomization resulted in nearly identical cell sizes, with each of the twelve experimental cells containing between ten and twelve subjects. The subjects were told that they would be asked to examine two ads that were run
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in different areas of the country. They were asked to examine these ads as they would normally examine print advertisements. Subjects were given one minute to view each advertisement (pre-testing had indicated that this amount of time was sufficient for subjects to examine the ads). The first ad viewed (a filler ad for a backpack, selling at $18 with no external reference price) was common to all subjects and was included to disguise the focus of the study. After exposure to this ad, subjects were asked to view the target ad for one minute. Following this, the dependent measures were collected. Subjects completed the questions without referring back to the target advertisement. This procedure was designed to elicit the initial impressions subjects had formed in looking at the ad, rather than a rescrutiny of the ad based on subsequent questions. At the end of the entire experiment, subjects were asked “Please describe what you think the purpose of this task was.” No subject correctly identified the purpose of the study, suggesting experimental demand effects are unlikely.
RESULTS Since the three dependent measures are conceptually related, we expected them to be statistically intercorrelated. Our three dependent variables were significantly inter-correlated (“offer” and “credibility” at r = .427; “deal” and “credibility” at r = 522; “offer” and “deal” at r = .610). Therefore, a 3 x 2 x 2 full factorial MANOVA was performed. MANOVA adjusts for the intercorrelation among dependent variables when calculating significance levels (Hair, Anderson and Tatham, 1987). When conducting an experiment using multiple dependent measures, particularly when these measures are intercorrelated, many statisticians suggest first performing an overall MANOVA as a “screening analysis.” This allows the researchers to first test the overall null hypothesis that there are no differences among any of the experimental groups on any of the dependent measures. Then if one obtains a statistically significant MANOVA, one performs separate ANOVA’s on each of the dependent variables in order to better interpret that result (Hair, Anderson and Tatham, 1987). This was the approach employed in the present study. The cell means and standard deviations for the experiment are shown in Table 1. As can be seen in Table 1 (and as predicted in Hypothesis l), consumers’ reactions to a retail “sale” advertisement vary depending on the level of the sale price. The MANOVA for the sale price effect produced an F statistic of 6.96 (p < .OOl). Follow up ANOVA’s indicated that the sale price level had a significant impact on two of the three dependent measures. As expected, consumers shown the deep-discounted price of $9.99 perceived the advertised deal to be a significantly better value (X = 5.12)lthan did consumers viewing the moderately discounted $14.99 price (X = 4.48; F = 15.86; p < ,001). Similarly, consumers exposed to the $9.99 price had more positive attitudes toward the offer (73 = 5.11) than consumers exposed to the $14.99 offer (X = 4.64; F = 9.13; p < .003). Also consistent with Hl, perceptions of store credibility did not differ significantly between consumers exposed to the $9.99 price (X = 4.54) and those exposed to the $14.99 price (X = 4.48).
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TABLE1 Cell Means (and Standard Deviations) Ads without
Ads with Ref. Price
Rationale
Ref. Price
Offer Price =
Offer Price =
Offer Price =
Offer Price =
$9.99
514.99
59.99
$14.99
No Rationale AK Offer 4.93 Value Deal 4.66 Store Cred. 3.85 B. Clearance Rationale Att. Offer 4.98 Value Deal 4.73 Store Cred. 4.51 C. Volume Rationale AK Offer 5.71 Value Deal 5.48 Store Cred. 4.70 D. All Rationales AK Offer Value Deal Store Cred.
Across a// Price Conditions
A.
(.98) (1.14) (1.0)
4.30 4.68 4.53
(1.05) c.75) c.98)
5.0 5.2 4.88
C.71) c.88) c.65)
5.2 4.35 4.72
(1.0) C.99) f.88)
4.85 4.72 4.48
c.98) c.96) c.95)
(1.1) (1 ,121 c.69)
4.20 4.14 3.75
(.71) C.94) (1.0)
5.12 5.5 4.96
(1.16) C.75) (1.0)
4.65 4.05 4.54
c.84) (1.19) (1 .I 7)
4.73 4.60 4.42
(1 .OO) (1 .13) (1.04)
(.59) c.70) (.67)
4.93 5.02 4.76
(.71) c.80) c.81)
4.84 5.14 4.36
t.76) c.76) t.84)
4.59 4.59 4.58
c.82) C.59) t.62)
5.03 5.07 4.60
c.82) C.77) c.73)
4.85 4.79 4.36
c.98) t.98) c.93)
4.90 4.81 4.67
C.88) c.98) (.86)
Hypotheses 2 and 3 predicted that consumers’ reaction to the retail sale advertisement would be affected by (respectively) the inclusion of reference price and the inclusion of a “low-price rationale.” The MANOVA indicated no significant main effect of either manipulation on consumers’ responses. However, it revealed a significant two-way interaction between rationale and reference price (F = 2.22, p < .05). Thus, separate ANOVA’s were performed to examine this interaction for each of the three dependent measures. These analyses revealed significant interaction effects of rationale and external reference price on both consumers’ attitude toward the advertised offer (F = 4.78, p < .Ol) and their perceptions of store credibility (F = 3.7 1, p c .03). Figure 1 graphs the first of these interactions, showing how the presence or absence of an external reference price moderates the impact of rationale on attitude toward the offer. When the offer price is explicitly presented as a price reduction, (i.e., when the offer price is accompanied by a higher “regular” price), consumers’ attitudes toward the offer appear to be influenced by the rationale that is provided to explain this reduction. Specifically, the most favorable attitudes occur when a “volume-purchase” rationale is provided in the ad. However, when the offer price is not explicitly presented on a reduction from a regular price, the rationale appears to have relatively little impact on attitude toward the offer. (Further statistical analyses of these differences will be presented below.) Figure 2 depicts the interactive impact of reference price and rationale on store credibility. Again, the impact of the rationale appears to depend on whether the offer price is explicitly presented as a price reduction. When the offer price is presented as a reduction from a “regular” price, store credibility perceptions are influenced by the rationale given in the ad. And, once again, the most favorable perceptions occur when the volume-purchase rationale is given.
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5.5 Ref. Price
Attitude Toward Offer
/
5.o Q+-+
No Ref. Price
4.5
4.0
No Rationale
Volume Rationale
Inventory Rationale
F = 4.78; p = .01
Figure 7. Effect of Rationale and Reference Price on Attitude Toward the Advertised Offer
5.5
store
5.0
Ref. Price
Credibility
4.5
NO Ref. Price
4.0
No Rationale
Inventory Rationale F=3.71;
Figure 2.
Volume Rationale
p=.O27
Effect of Rationale and Reference Perceived Credibility of the Store
Price on
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To further analyze the impact of rationales within each reference price condition, we first divided the subjects into two groups: those who were presented with a reference price, and those who were not. Then, within each reference-price group, we conducted 2 X 3 analyses of variance, analyzing the effect of rationale and offer price. This analysis was first performed on all three dependent variables simultaneously, using MANOVA. This analysis revealed that in the no-reference-price condition, rationale did not have a significant impact [F = .98, p = N.S.]. However, among subjects exposed to the reference price, rationale did have a significant impact [F = 2.20, p -C.05]. When individual ANOVA’s were performed on the three dependent measures, it was found that, among subjects to whom the offer price was presented as a reduction from a higher regular price, the rationale had a significant impact on the attitude toward the offer (F = 5.12, p < .Ol), the perceptions of the deal’s attractiveness (F = 4.75, p -c .OS) and the credibility of the store (F = 3.30, p < .05). In all these cases, the volume rationale received the most favorable scores. To further explore reactions to the rationale treatment, we examined subjects’ openended responses to the ads. As mentioned earlier, each subject was asked “Why do you think the T-shirts were being promoted?’ The 129 subjects generated a total of 203 comments in response to this question. These comments were then categorized as either “clearance” explanations (implying the store was trying to unload “problem” merchandise; examples: “They were out of style/season”; “They weren’t selling well”) or “promotional” explanations (implying the store was simply promoting an appealing item to generate sales and store traffic; examples: “Because T-shirts are very popular;” “To attract customers to the store ...“). The responses were coded independently by two judges who were blind to both the treatment group of the cases they coded and to each other’s coding. These two judges initially produced identical codings on 197 of the 203 comments, for a 97% agreement. After discussing the remaining 6 cases, they reached consensus on these as well. Of the 203 comments, 112 were coded as “clearance,” 88 as “promotional,” and 3 as miscellaneous/irrelevant. As a first step in analyzing these data, each subject was given a score indicating the proportion of his/her comments which were clearance related. For example, if all of a subject’s comments were coded as clearance, s/he was given a score of 1.O; if all were promotional, a score of 0.0; if a subject’s comments were mixed, this suggested some ambivalence, and the subject received a score between 0 and 1 (e.g., a subject who offered one clearance and one promotional explanation would be scored .50). To determine whether subjects interpreted the store’s motivation differently depending on the rationale treatment they received, we compared the means of the three groups. Subjects exposed to the inventory rationale gave a higher mean proportion of “clearance” explanations for the sale (X = .72) than did subjects exposed to either the volume rationale (X = .52) or the no-rationale control condition (X = .37). To test the statistical significance of these differences, we calculated an overall F statistic to determine if there were any significant inter-group differences, and then conducted post hoc tests (using the Scheffe test, with alpha set at .05) to determine which specific inter-group differences accounted for an overall significant F. The overall F was statistically significant (F = 6.836, p c .Ol). The post hoc comparisons revealed that subjects exposed to the “inventory” rationale made a significantly higher proportion of “clearance” attributions than did either of the other two treatment groups; none of the other inter-group differences was statistically significant.
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Thus the results of this analysis are perhaps not too surprising: Subjects who were told by the retailer “We don’t want to count it, so you save” were more likely to infer that the store was trying to unload hard-to-sell merchandise than were subjects exposed to either of the other two rationale treatments.
DISCUSSION The results of this experiment suggest several things. First, they suggest that advertising a product at a much lower than expected price (i.e., 50% lower vs. 25% lower than perceptions of the market-wide non-promoted price for the product) enhances the attractiveness of the advertised offer without diminishing the perceived trustworthiness of the retailer. Thus consumers seemed to accept that some retailers can offer the product at substantially lower than average prices. These findings are consistent with our first hypothesis and with previous research (Lichtenstein, Burton and Karson, 1991). Second, the results suggest that, contrary to our second hypothesis, the inclusion of the $20.00 regular price did not have a main effect on consumers’ perception of the offer or the store. A key to understanding this somewhat surprising finding may be found in the work of Biswas and Blair (1991). These authors criticize past research on reference prices, stating that (p. 2) “... all of the researchers have implicitly assumed that external reference prices raise perceptions of saving...” Biswas and Blair argue (and their data seem to confirm) that, to be effective, an external reference price must raise consumers ’ priorperceptions of market-wide prices, thereby reducing the perceived “shop-around” savings that would result from purchasing the product elsewhere. When we view our reference price manipulation in this light, its lack of main effects becomes more understandable. As mentioned earlier, our $20.00 reference price was based on pretests in which subjects were shown the T-shirt without a price and asked to estimate the typical market-wide non-promoted price for the product (i.e., “the typical price charged by local retailers”). The median response was $20. Thus the inclusion of a $20 external reference price in the ad presented subjects with little new information regarding market-wide prices. However, the inclusion in the ad of a $20 “regular” price may contain some informational value, since it informs consumers that the offer price represents a deviation from the customary pricing ofthisparticulur store. The implications of this issue are discussed below. The most novel manipulation in our experiment was the inclusion of price rationales in the retail advertisements. Rationale did not have a main effect; however, when the offer price was presented as a reduction from this particular store’s regular price, consumers’ response depended on the rationale the retailer offered for this price reduction. When the reduced price offer on the T-shirt was accompanied by the volume-purchase rationale, consumers responded more favorably (in terms of attitude toward the offer, perceived value of the deal, and perceived retailer credibility) than when the offer was accompanied by either the inventory-reduction rationale or no rationale at all. Thus the announcement of a price reduction (in which the retailer deviates from its customary or normal pricing behavior) appears to “call for an explanation” to a greater degree than an every day low price. Consistent with this interpretation, Kahneman et al. (1986)
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suggest that the seller’s customary price is viewed as the standard or “reference transaction,” which requires no explanation to justify its fairness or reasonableness; however, when the seller deviatesfrom r/rat reference transaction, consumers will examine the contextual cues to judge the fairness of the new price. In fact, most price rationales that appear in retail advertising (as evidenced by the survey of newspaper ads mentioned in the Method section) are used to explain some special event prompting a deviation from the store’s normal pricing-e.g., an anniversary sale, end-of-year clearance, midnight madness, etc. This was certainly true of the two rationales used in our study, which announced (respectively) a special large volume purchase and an impending merchandise inventory count. Thus it may make sense that these rationales have most impact on customers trying to interpret a deviation from the seller’s normal pricing practice. It should be noted that, while the inclusion of the volume rationale improves consumers’ perceptions of the reference price ads, the nature of this improvement differs somewhat between the two dependent variables shown in Figures 1 and 2. The combination of the reference price and the volume rationale results in the highest attitude toward the offer of any of the experimental conditions. This is consistent with the finding of Kahneman et al. (1986) that consumers are positively disposed to price changes based on changes in seller costs. In the case of store credibility, the volume rationale also enhances the effectiveness of the reference price ad; but in doing so merely raises the credibility of the reference price ad to approximately the same level exhibited for the no-reference price ads. Thus the volume rationale appears to at least neutralize some of the potential negative store credibility connotations of “discount” pricing, that have been mentioned by past authors (Agins, 1990). In summary, the central finding of this paper is that consumers’ perceptual responses to an advertised price reduction can be influenced by the rationale the advertiser provides for this reduction. This finding has some practical implications for retailers, suggesting that shoppers may be more willing to accept the legitimacy of an advertised price reduction if the retailer provides a plausible explanation of why this reduction is being offered. Specifically, our findings suggest that a rationale that implies the retailer is passing lower costs on to the consumer (e.g., through a volume discount) is particularly effective in enhancing consumer attitudes toward a reduced-price offer, and the store that advertises it. However, further research is needed into the relative effectiveness of specific rationales. In general, our study points to several important avenues for future research on retail price advertising. First, future research should examine whether the impact of price rationales is moderated by the ZeveZof the reference price included in the retail ad. In this experiment, the advertised “regular” price was set at the median of consumers’ perceptions (based on pre-tests) of the “... typical price charged by local retailers ...” for the product when it was not being promoted. Yet an advertised reduction even from such an apparently “‘plausible” reference price seemed to elicit some consumer skepticism toward the retailer, unless this reduction was accompanied by an appropriate rationale (see Figure 2). This finding goes beyond those of past research (Urbany et al., 1988) which has mainly addressed the credibility problems created by exaggerated or implausible reference prices. Future research should examine the pervasiveness of consumer skepticism toward more moderate reference prices. Furthermore, it would be interesting to examine whether the inclusion of various price rationales can reduce consumer skepticism of even exaggerated external reference prices
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such as those discussed by Urbany et al. (1988) and Lichtenstein, Burton and Karson (1991). In addition, future research should examine the interaction between the particular rationale that is used and the context in which it appears. One such contextual variable worthy of further examination is store type. Biswas and Blair (199 1) note that consumers’ perceptions of a given price reduction can vary depending on the type of store placing the ad (e.g., whether it is a department store or a discount store). It may be that the plausibility of certain price reduction rationales varies depending on the type of store. For example, the volume rationale would seem likely to be more plausible for a large mass-merchant than for a smaller store. The present study produced some unanticipated findings that suggest issues for future research. First, the rationale manipulation did not exhibit a main effect, but rather interacted with the presence of an explicit price reduction claim. The authors have attempted to provide a plausible explanation for this interaction. However, future research should attempt both to replicate it, and to explain it more fully. Second, this interactive effect of rationale was observed for perceived store credibility and attitude toward the offer, but not for perceptions of the value of the deal. While the factor analysis did suggest that “offer” and “deal” were two distinct constructs, they seem very similar conceptually, and it is not obvious why the rationale manipulation would affect one and not the other. A fuller explanation of these unanticipated results might be greatly aided by examining the cognitive processes through which retailer-provided price rationales affect consumer perceptions of the advertised offer and the store itself. The work of Kahneman et al. (1986) may be especially helpful in examining these processes. Their research suggests that consumers tend to accept a retailer’s customary pricing policy as a “reference transaction,” that has been tacitly accepted by both the seller and the buyer, and does not require justification; however, Kahneman et al. suggest that once the seller deviates from this reference transaction, consumers examine cues regarding the reason for this deviation, before evaluating the “fairness” of the new price to consumers. In the research of Kahneman et al. (as well as our own) subjects’ responses were measured primarily through structured attitude scales, completed after exposure to the price-situation stimuli. However, an understanding of the consumers’ cognitive responses during exposure to such stimuli might be enhanced by the use of concurrent process tracing methods, including verbal protocol analysis, and measures of response time. From an analysis of verbal protocols, for example, researchers could more directly examine the extent to which consumers spontaneously make judgments of retailer credibility and price fairness when examining price changes, as well as what heuristics they use in making such judgments, and how the presentation of retailer-provided rationales affect their cognitive responses. This would appear to be a fruitful avenue for future research on consumers’ response to price-oriented advertising. Agins (1990) has noted that the recent explosion of retail price discounting has left many consumers “. .. perplexed about pricing tactics and wondering whether they are really getting bargains.” This study suggests one method retailers may use to help consumers make sense out of advertised prices and perhaps bolster their confidence in both the legitimacy of the bargain and the trustworthiness of the merchant offering it: price “rationales.” We hope this study stimulates further research on this specific retail advertising tactic, and the ways in which consumers interpret retail price advertising.
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REFERENCES
Agins, Teri. (1990). “Low Prices or Low Practice? Regulators Cast Wary Eye on Retailers’ Many Sales,” Wall Street Journal, February 13, B- 1. Anand, Punam and Brian Sternthal. (1990). “Ease of Message Processing as a Moderator of Repetition Effects in Advertising,” Journal of Marketing Research, 27(August): 345-353. Bearden, William, Donald Lichtenstein and Jesse Teel. (1984). “Comparison Price, Coupon and Brand Effects on Consumer Reactions to Retail Newspaper Advertisements,” Journal of Retailing, 60(2): 11-36. Berkowitz, Eric and John Walton. (1980). “Contextual Influences on Consumer Price Responses: An Experimental Analysis,” Journal ofMarketing Research, 17(August): 348-358. Biswas, Abhijit and Edward Blair. (1991). “Contextual Effects of Reference Prices in Retail Advertisements,” Journal ofMarketing, 55(July): l-12. Blair, Edward and Laird Landon. (1981). “The Effects of Reference Prices in Retail Advertisements,” Journal of Marketing, 45(Spring): 61-69. Cox, Anthony and Dena Cox. (1990). “Competing on Price: The Role of Retail Price Advertisements in Shaping Store-Price Image,” Journal of Retailing, 4(Winter): 428-445. Della Bitta, Albert, Kent Monroe and John McGinnis. (1981). “Consumer Perceptions of Comparative Price Advertisements,” Journal of Marketing Research, lS(November): 418-427. Friestad, Marian and Peter Wright. (1994). “The Persuasion Knowledge Model: How People Cope with Persuasion Attempts,” Journal of Consumer Research, Zl(June): 1-3 1. Fry, Joseph and Gordon McDougall. (1974). “Consumer Appraisal of Retail Price Advertisements,” Journal of Marketing, 38(July): 64-67. Hair, Joseph, Rolph Anderson and Ronald Tatham. (1987). Multivariate Data Analysis. New York: MacMillan. Hayward, Susan. (1988). The Changing American Consumer. An saddress at the American Marketing Association Conference, March 1988, Atlanta, Georgia. Kahneman, Daniel, Jack Knetsch and Richard Thaler. (1986). “Fairness as a Constraint on Profit Seeking: Entitlements in the Market,” The American Economic Review, 76(September): 728-74 I. Kalapurakal, Rosemary, Peter Dickson and Joel Urbany. (1991). “Perceived Price Fairness and Dual Entitlement.” Pp. 788-793 in Rebecca Holman and Michael Solomon (eds.), Advances in Consumer Research, Vol. 18. Provo, UT: Association for Consumer Research. Lichtenstein, Donald and William Bearden. (1989). “Contextual Influences on Perceptions of Merchant-Supplied Reference Prices,” Journal of Consumer Research, 16(June): 55-66. Lichtenstein, Donald, Scot Burton and Eric Karson. (1991). “The Effect of Semantic Cues on Consumer Perceptions of Reference Price Ads,” Journal of Consumer Research, l@December): 380-391. Lichtenstein, Donald, Scot Burton and Bradley S. O’Hara. (1989). “Marketplace Attributions and Consumer Evaluations of Discount Claims,” Psychology and Murketing, 6(Fall): 163- 180. Martineau, Pierre. (1957). Motivation in Advertising. New York: McGraw Hill. McGuire, William. (1964). “Inducing Resistance to Persuasion: Some Contemporary Approaches.” In L. Berkowitz (ed.), Advances in Experimental Social Psychology. New York: Academic Press. Monroe, Kent. (1979). Pricing: Muking Profitable Decisions. New York: McGraw Hill. Ortmeyer, Gwen. (1991). Retail Promotional Pricing: When is a Sale Really a Sale? (A). Boston, Massachusetts: Harvard Business School. Petty, Richard and John Cacioppo. (1981). Attitudes and Persuasion: Classic and Contemporary Approaches. Dubuque, IA: Wm. C. Brown.
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Rajendran, K.N. and Gerald Tellis. (1994). “Contextual and Temporal Components of Reference Price,” Jounrol ofA4urketing, %(January): 22-34. Schwadel, Francine. (1990). “Store’s Concept of ‘Sale’ Pricing Gets Court Test,” Wall Street Journal, May 15, B-l, B-6. Urbany, Joel, William Bearden and Dan Weilbaker. (1988). “The Effect of Plausible and Exaggerated Reference Prices on Consumer Perceptions and Price Search,” Journal of Consumer Research, 15(June): 95-110.
GEORGE S. BOBINSKI, JR. Binghamton University
DENA COX and ANTHONY
COX
lndiana University
Retailers often advertise products at “reduced” prices. Past research has suggested this is an effective way to appeal to consumers; advertising
but recent evidence indicates growing consumer mistrust of this type of
claim. This paper presents
an experiment
that suggests consumer perceptions
of retail
price reductions may depend on the rationale the retailer provides for the reductions. Directions for future research are discussed.
INTRODUCTION
Reduced Price Advertising
and Retailer Credibility
For years, retailers have periodically advertised their merchandise at reduced or “sale” prices. However, recently the popularity of this practice has grown tremendously. As reported in the Wall Street Journal (Agins, 1990, p. B 1): “The number of sales and markdowns at retail stores has exploded in recent years .. . It seems everything is on sale these days ...” Even traditionally full-price retailers (e.g., department stores) now nearly continuously advertise sharp reductions from their “regular” prices. For example, Ortmeyer (199 1) reports that over 60% of department store sales volume is sold at “sale” prices. Most academic research has suggested that the presence of an external reference price (e.g., a “regular” price) enhances the attractiveness of the advertised offer (Lichtenstein, Burton and Karson, 1991; Urbany, Bearden and Weilbaker, 1988; Bearden, Lichtenstein and Teel, 1984; Blair and Landon, 1981; Della Bitta, Monroe and McGinnis, 1981), perceptions of low store-wide
George S. Bobinski, Jr., Binghamton University, School of Management, Binghamton, Dena Cox and Anthony Cox, Indiana University, Graduate School of Business, Department West Michigan, Indianapolis, IN 46202-5 15 1. Journal of Retailing, Volume 72(3), pp. 291-306, ISSN: 0022-4359 Copyright 0 1996 by New York University. All rights of reproduction
291
NY 13902-6015. of Marketing, 801
in any form reserved.
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prices (Cox and Cox, 1990), and actual product sales (Rajendran and Tellis, 1994). As Rajendran and Tellis note, external reference prices can provide consumers with a standard (representing either past prices for the offered product, or current prices of competitive products) against which they can more easily judge the attractiveness of the offer price. However, as reductions from regular price become increasingly commonplace, an additional issue arises: the credibility of advertisers’ price claims. Advertising regulators have recently uncovered myriad cases of deceptive reference prices (Schwadel, 1990). Further, there are hints that “sale” advertising is meeting with growing consumer skepticism. Agins (1990) observes that consumers appear “... perplexed about pricing tactics and wondering whether they are really getting bargains.” Results of the Yankelovich Monitor suggest that consumers are increasingly skeptical of supposed “regular” prices, feeling that “if you wait long enough, you can always buy a product on sale” (Hayward, 1988). One retail CEO recently complained to the authors about stores that “play games” with reference prices, and expressed concerns over the long-term impact on retailer credibility. This concern echoes Pierre Martineau’s (1957) observation, made nearly 40 years ago:
For all of the retailer’s remarks that his advertising is measured strictly in terms of immediate sales . it is perfectly clear that every ad he runs is an institutional ad. Whether he realizes it or not, all of his advertising is creating an image for his store .. .
Only a few studies have examined the impact of “sale” advertising on retailer credibility. Lichtenstein and Bearden (1989) found that a retailer employing an implausibly high reference price was perceived as less trustworthy than one using a plausible reference price. In addition, they manipulated two contextual variables: the distinctiveness of a store’s reduced-price advertisement (i.e., the extent to which such price promotions were unusual among the advertiser’s competitors) and its consistency (i.e., whether the advertiser frequently engaged in similar price promotions). They hypothesized that the store’s credibility would increase with offer distinctiveness (since distinctive offers were expected to be harder for the consumer to dismiss as something “all stores claim”) and decrease with ad consistency (since repeated use of the same discount may cast doubt on its legitimacy). However, while these contextual variables influenced consumers’ perceptions of the immediate advertised offer, neither affected the store’s perceived credibility. A more recent study of retail price advertising (Lichtenstein et al., 1991) also examined store credibility effects. This study included a variety of reference price manipulations, as well as a control condition in which no reference price was presented. They found (p. 389) that this “control condition resulted in more favorable source credibility perceptions” than did any of the reference price conditions.
The Role of Price “Rationales”
Our study extends previous research on how retail “sale” price advertising affects retailer credibility. Like Lichtenstein, Burton and Karson (1991), we examine the impact of sale
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price level, the use of a reference price, and contextual cues on perceptions of both the advertised offer and the store’s credibility. However, the nature of the contextual cue we examine differs from those employed in their study. Lichtenstein, Burton and Karson manipulated cues by which buyers could judge whether the offer price was truly lower than “normal” prices for this item: i.e., information on the past prices offered by the current advertiser, and the prevailing prices charged by competitive dealers. Our study, in contrast, provides consumers with cues regarding the reasons or circumstances motivating the seller to reduce its price. Specifically, our study focuses on the rationale the retailer provides for reducing the price of the advertised product. This contextual cue has not been examined in prior empirical studies, yet it is employed in a surprisingly large number of retail advertisements. In examining a large number of retail “sale” advertisements, we found that many offer a rationale or explanation for the low-price offer. For example, some stores claim that their low costs permit them to “pass the savings on” to their customers; others state that they are lowering prices to “clear” end-of-season merchandise, to celebrate a holiday or store anniversary, to raise quick cash, or even because of the temporary insanity of the owners (e.g., “Midnight Madness” sales). Given the pervasiveness of this advertising practice, one is prompted to ask: why do stores offer such “price rationales” and what is their effect on buyer perceptions? Retailers may feel that consumers offered an unusually low price (having learned from an early age that “you only get what you pay for” and “you can’t get something for nothing”) will seek to explain this apparent windfall. Given consumers’ general suspicion regarding sales (see e.g., Fry and McDougall, 1974), there is a danger that their explanations may reflect negatively on the advertised products (e.g., that the merchandise is of inferior quality) or the store (e.g., that the store engages in deceptive pricing practices). Several recent pricing studies suggest that consumers’ reactions to a price change depend not just on the magnitude and direction of the change, but on buyers’ perceptions of the seller circumstunces and motivations that led to it. For example, both Kahneman, Knetsch and Thaler (1986) and Kalapurakal, Dickson and Urbany (I 991) examined how consumers’ perceptions of the “fairness” of price increases were influenced by the circumstances that led to them. For example, Kahneman et al. found that buyers typically perceive a given price increase as “fair” if it is a reaction to an increase in seller costs, but as unfair if it is a reaction to increased consumer demand. Similarly, Lichtenstein, Burton and O’Hara (1989) examined how consumers’ attributions regarding a retailer’s motives for discounting a product influenced their attitudes toward the deal. They found, for example, that consumers had more negative attitudes toward the deal when they attributed it to the retailer’s desire to unload a difficult-to-sell product. In general, the results of these studies support Friestad and Wright’s (1994, p. 1,21) contention that ‘I... persuasion targets often have an interpretive orientation to the ads and sales presentations they observe,” and that these interpretations help consumers “... refine their product attitudes and attitudes toward the marketers themselves.” Viewed from a cognitive response perspective (see e.g., Petty and Cacioppo, 1981; Anand and Stemthal, 1990), consumers faced with a low price claim may generate counter arguments that diminish the impact of the message (e.g., “sure it’s on sale, but it’s probably leftover stuff . ..“). One way to reduce such counter arguments may be to preempt them, by providing consumers with a plausible rationale for the low price which does not reflect neg-
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atively on either the advertised offer or the advertising store. (See McGuire’s, 1964 discussion of the closely related concept of “inoculation” against negative arguments.) In order to assess the pervasiveness of price rationales, we examined retail newspaper ads appearing in five different metropolitan markets during three different months. The newspapers selected had average daily circulations ranging from 68,000 to 1.17 million readers. Surveying each newspaper over approximately ten different days, we found that price rationales occurred in a total of 188 advertisements. The most frequent price reduction rationales were that the store had an inventory overstock (95 ads), a holiday sale (41 ads), and that it was passing along a discount from the manufacturer (28 ads). For our experiment, we decided to include the inventory and manufacturer discount rationales, since these were two of the three most common rationales, and since each appears to contain a different connotation (e.g., an eagerness to reduce inventories may indicate something about the desirability of this merchandise). Since the motivation behind a holiday sale seemed particularly ambiguous, we chose not to include it in this study.
Hypotheses
This study examines how varying sale price levels, the use of reference prices, and lowprice rationales in a retail ad affect consumers’ perceptions of both the advertised offer and the credibility of the retailer. The first two hypotheses are based on past research findings discussed earlier (especially Lichtenstein, Burton and Karson, 1991). Hypothesis 1 essentially states that a much-lower-than-typical offer price will enhance consumer perceptions of the attractiveness of the offer and the price deal, and will have no impact on the perceived credibility of the store. Hypothesis 2 states that the mere presence of a reference price (even one that is typical of prices charged by local retailers) serves as an informational cue for consumers, that simultaneously evokes skepticism about the store and enhances perceptions that the consumer is getting a “deal.” This somewhat paradoxical prediction is based on the notion (introduced by Urbany, Bearden and Weilbaker, 1988) that consumers tend simultaneously to be skeptical of stores’ use of reference prices, and be influenced by them. The third hypothesis is based on our preceding discussion of price rationales: that a plausible rationale should reduce consumer skepticism regarding both the validity of the advertised deal and the trustworthiness of the retailer placing the ad. The fourth hypothesis predicts that some discount rationales will elicit more positive consumer reactions than others. Given past research on consumer price perceptions, one would expect the “volume cost savings” rationale to be particularly appealing to consumers. The experiments of Kahneman et al. (1986) suggest that buyers expect sellers to pass on higher costs in their prices (in order to preserve their “reference profit level”) but do not necessarily expect sellers to pass on cost savings in their prices; thus a seller who does so may be seen as exceeding buyer’s expectations for fair behavior. In the same context, Kalapurakal et al. (1991) note that “... buyers .. . may not know about the cost savings that are not passed on to them.” Thus, the seller who tells buyers about his cost savings, and passes them on in lower prices, may be seen as unusually forthcoming and generous. In contrast, the “inventory” rationale (“we don’t want to count it, so you save”) may be perceived less
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by consumers. First, it suggests that the seller’s price change is motivated by laziness (or perhaps a reluctance to pay inventory taxes), rather than a magnanimous desire to pass on costs savings to his customers. Second, this rationale may imply that the discounted merchandise is old, leftover or undesirable. The research of Lichtenstein, Burton and O’Hara (1989) suggests that this is one of the most important negative interpretations consumers may make of a discounted price. Thus, the formal hypotheses: Hl:
An extremely (vs. moderately) low sale price will a. increase attitudes toward the advertised offer and deal b. have no impact on the perceived credibility of the advertising store
H2:
The presence of an external reference price will a. increase attitudes toward the advertised ogler and deal, but b. decrease the perceived credibility of the advertising store.
H3:
The presence of a price rationale will increase both a. attitudes toward the advertised ofleer and deal, and 6. the perceived credibility of the advertising store.
H4:
The “volume” rationale, compared to the “inventory” rationale will more positively influence consumers’ a. attitudes toward the advertised offer and deal, and 6. the perceived credibility of the advertised store
METHOD
Our study used a 3 x 2 x 2 between-subjects experiment to examine the research issues discussed above. Each subject was exposed to one of twelve versions of a retail price advertisement for a fashion T-shirt. These twelve ads differed in terms of: (1) The rationale that was given for the price (no rationale; the “excess inventory” rationale; or the “volume purchase” rationale). (2) The reference price (either no reference price or a $20 reference price). (3) The selling price of the product (either $9.99 or $14.99).
Subjects
Volunteers were recruited from sophomore and junior management classes at an Eastern university. A total of 129 usable questionnaires were obtained. The subjects ranged in age from 19 to 30 with a mean age of 20.6. There were slightly more males than females in the sample (53% vs. 47%). Each subject was randomly assigned to one of 12 target experimental conditions, with between ten and twelve subjects per cell. It should be noted that this somewhat small cell size tends to limit the statistical power of ANOVA, increasing the possibility that a true group difference may fail to be detected, particularly for higher-order interactions.
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Stimuli
The stimuli were print advertisements for a striped T-shirt, which were designed expressly for this study. The product category was selected to be one for which both male and female college students would be potential customers. This was confirmed by our data, which indicated that 100% of the sample had at some time purchased a T-shirt. The ad was designed to be believable as a real retail advertisement, but not identifiable with any particular retail store in the area. Subjects were told that this ad had run in another area of the country and that the store name was being omitted. We did not want to have any carry-over effect of store name. In written post-experimental comments, no subject either questioned the legitimacy of the ad or identified it with any store. In the top half of each ad was a black and white photo of a man and woman both wearing the striped T-shirts. Beneath this was a description of the product and the sizes available. These features were common to all manipulations.
Independent
Variables
R~tionu~e~ Each ad either had no headline or had one of two low-price rationales displayed in a prominent headline above the picture of the T-shirts. The high volume rationale was: ‘“We purchased in high volumes and now we’re passing the savings on to you!” The sale-We don’t want to count it, so you inventory rationale headline was: “Pre-inventory save!” Half of the ads stated no reference price, and half stated that External Reference Price: the T-shirt was “regularly $20.” This reference price was determined in pre-tests, in which an independent set of subjects (n = 38) was shown the ad with no rationale or pricing information and asked, “What is your estimate of the typical price charged by local retailers for the T-shirts depicted in the advertisements when they are not being promoted?” The median response to this question was $20.00. Thus, the reference price used in our ads can be considered plausible to the subjects. Other researchers have determined that the plausibility of the reference price can have an effect on consumers’ perceptions (Biswas and Blair. 1991; Lichtenstein and Bearden, 1989). Sale Price: Half of the ads offered a discount of about 25% from the product’s expected price (as determined by the pre-tests mentioned above) resulting in a sale price of $14.99. An examination of retail adve~isements in this market revealed discounts in this range to be fairly common. The other half of the stimuli offered a sale price of $9.99, representing an unusually deep (about SO%) discount from the expected price of the product.
Dependent
Variables
After ad exposure, subjects reported their perceptions of the value of the advertised deal, their attitude toward the offer, and their perceptions of the store’s credibility.
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Monroe (1979) contends that in pricing studies, “attitude toward the offer” is a more relevant dependent measure than attitude toward the brand, since the former represents a more global assessment of the attractiveness of this product at this particular price. Thus we included a measure of attitude toward the offer, drawing on the scale used by Lichtenstein and Bearden (1989). This measure consisted of four 7-point semantic differential scales, each assessing the advantageousness of accepting the advertised offer (e.g., the advertised offer for the T-shirt is “very good/bad”; “very favorable/unfavorable”; “very advantageous/ disadvantageous”; “very beneficial/not beneficial”). This scale was internally consistent with a coefficient alpha of .86. Consumers’ perceptions of the value of the advertised deal have been measured in pricing experiments conducted by Berkowitz and Walton (1980) and Lichtenstein and Bearden (1989). Our measure of perception of value of the deal was similar to measures used by these authors. It consisted of four 7-point semantic differential scales assessing the value of the advertised sale price (e.g., the advertised shirt is an “excellentiad buy for the money”; the advertised shirt is offered at an “extremely fair/unfair price”; the advertised offer for the T-shirt represents “extremely large/no savings”; the advertised T-shirt is “extremely good/ not a good value for the money”). This scale had a coefficient alpha of .86. The distinction between attitude toward the offer and perceived value of the deal, while subtle, was confirmed in a variety of factor analyses. When all scale items were entered into factor analyses (using both orthogonal and oblique rotations), these two constructs always emerged as distinct factors, with each scale item loading on the expected factor. For this reason, as well as to maintain comparability to past studies (Lichtenstein and Bearden, 1992), “offer” and “deal” were treated as two distinct dependent variables throughout the analysis. Perceived store credibility was measured using scales similar to those used by Lichtenstein and Bearden (I 989). This measure consisted of five 7-point semantic differential scales rating the credibility or trustworthiness of the store advertising the shirt (e.g., “very I‘very dependable/undependable,” sincere/insincere,” “very honest/dishonest,” “very trustworthy/untrustworthy,” “ high credibility/low credibility”). The coefficient alpha for this measure was .9 1. After the dependent measures were collected, subjects responded to the open-ended question: “Why do you think the T-shirts were being promoted?’ The coding and analysis of this item are reported in the Results. The questionnaire also contained questions about another advertisement (intended to disguise the focus of the experiment) and demographic questions.
Procedure
Subjects were processed in small groups, and treatments were randomized within each group by prior shuffling of the experimental booklets. Each subject was randomly assigned a booklet containing one of the twelve target ads. Randomization resulted in nearly identical cell sizes, with each of the twelve experimental cells containing between ten and twelve subjects. The subjects were told that they would be asked to examine two ads that were run
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in different areas of the country. They were asked to examine these ads as they would normally examine print advertisements. Subjects were given one minute to view each advertisement (pre-testing had indicated that this amount of time was sufficient for subjects to examine the ads). The first ad viewed (a filler ad for a backpack, selling at $18 with no external reference price) was common to all subjects and was included to disguise the focus of the study. After exposure to this ad, subjects were asked to view the target ad for one minute. Following this, the dependent measures were collected. Subjects completed the questions without referring back to the target advertisement. This procedure was designed to elicit the initial impressions subjects had formed in looking at the ad, rather than a rescrutiny of the ad based on subsequent questions. At the end of the entire experiment, subjects were asked “Please describe what you think the purpose of this task was.” No subject correctly identified the purpose of the study, suggesting experimental demand effects are unlikely.
RESULTS Since the three dependent measures are conceptually related, we expected them to be statistically intercorrelated. Our three dependent variables were significantly inter-correlated (“offer” and “credibility” at r = .427; “deal” and “credibility” at r = 522; “offer” and “deal” at r = .610). Therefore, a 3 x 2 x 2 full factorial MANOVA was performed. MANOVA adjusts for the intercorrelation among dependent variables when calculating significance levels (Hair, Anderson and Tatham, 1987). When conducting an experiment using multiple dependent measures, particularly when these measures are intercorrelated, many statisticians suggest first performing an overall MANOVA as a “screening analysis.” This allows the researchers to first test the overall null hypothesis that there are no differences among any of the experimental groups on any of the dependent measures. Then if one obtains a statistically significant MANOVA, one performs separate ANOVA’s on each of the dependent variables in order to better interpret that result (Hair, Anderson and Tatham, 1987). This was the approach employed in the present study. The cell means and standard deviations for the experiment are shown in Table 1. As can be seen in Table 1 (and as predicted in Hypothesis l), consumers’ reactions to a retail “sale” advertisement vary depending on the level of the sale price. The MANOVA for the sale price effect produced an F statistic of 6.96 (p < .OOl). Follow up ANOVA’s indicated that the sale price level had a significant impact on two of the three dependent measures. As expected, consumers shown the deep-discounted price of $9.99 perceived the advertised deal to be a significantly better value (X = 5.12)lthan did consumers viewing the moderately discounted $14.99 price (X = 4.48; F = 15.86; p < ,001). Similarly, consumers exposed to the $9.99 price had more positive attitudes toward the offer (73 = 5.11) than consumers exposed to the $14.99 offer (X = 4.64; F = 9.13; p < .003). Also consistent with Hl, perceptions of store credibility did not differ significantly between consumers exposed to the $9.99 price (X = 4.54) and those exposed to the $14.99 price (X = 4.48).
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TABLE1 Cell Means (and Standard Deviations) Ads without
Ads with Ref. Price
Rationale
Ref. Price
Offer Price =
Offer Price =
Offer Price =
Offer Price =
$9.99
514.99
59.99
$14.99
No Rationale AK Offer 4.93 Value Deal 4.66 Store Cred. 3.85 B. Clearance Rationale Att. Offer 4.98 Value Deal 4.73 Store Cred. 4.51 C. Volume Rationale AK Offer 5.71 Value Deal 5.48 Store Cred. 4.70 D. All Rationales AK Offer Value Deal Store Cred.
Across a// Price Conditions
A.
(.98) (1.14) (1.0)
4.30 4.68 4.53
(1.05) c.75) c.98)
5.0 5.2 4.88
C.71) c.88) c.65)
5.2 4.35 4.72
(1.0) C.99) f.88)
4.85 4.72 4.48
c.98) c.96) c.95)
(1.1) (1 ,121 c.69)
4.20 4.14 3.75
(.71) C.94) (1.0)
5.12 5.5 4.96
(1.16) C.75) (1.0)
4.65 4.05 4.54
c.84) (1.19) (1 .I 7)
4.73 4.60 4.42
(1 .OO) (1 .13) (1.04)
(.59) c.70) (.67)
4.93 5.02 4.76
(.71) c.80) c.81)
4.84 5.14 4.36
t.76) c.76) t.84)
4.59 4.59 4.58
c.82) C.59) t.62)
5.03 5.07 4.60
c.82) C.77) c.73)
4.85 4.79 4.36
c.98) t.98) c.93)
4.90 4.81 4.67
C.88) c.98) (.86)
Hypotheses 2 and 3 predicted that consumers’ reaction to the retail sale advertisement would be affected by (respectively) the inclusion of reference price and the inclusion of a “low-price rationale.” The MANOVA indicated no significant main effect of either manipulation on consumers’ responses. However, it revealed a significant two-way interaction between rationale and reference price (F = 2.22, p < .05). Thus, separate ANOVA’s were performed to examine this interaction for each of the three dependent measures. These analyses revealed significant interaction effects of rationale and external reference price on both consumers’ attitude toward the advertised offer (F = 4.78, p < .Ol) and their perceptions of store credibility (F = 3.7 1, p c .03). Figure 1 graphs the first of these interactions, showing how the presence or absence of an external reference price moderates the impact of rationale on attitude toward the offer. When the offer price is explicitly presented as a price reduction, (i.e., when the offer price is accompanied by a higher “regular” price), consumers’ attitudes toward the offer appear to be influenced by the rationale that is provided to explain this reduction. Specifically, the most favorable attitudes occur when a “volume-purchase” rationale is provided in the ad. However, when the offer price is not explicitly presented on a reduction from a regular price, the rationale appears to have relatively little impact on attitude toward the offer. (Further statistical analyses of these differences will be presented below.) Figure 2 depicts the interactive impact of reference price and rationale on store credibility. Again, the impact of the rationale appears to depend on whether the offer price is explicitly presented as a price reduction. When the offer price is presented as a reduction from a “regular” price, store credibility perceptions are influenced by the rationale given in the ad. And, once again, the most favorable perceptions occur when the volume-purchase rationale is given.
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5.5 Ref. Price
Attitude Toward Offer
/
5.o Q+-+
No Ref. Price
4.5
4.0
No Rationale
Volume Rationale
Inventory Rationale
F = 4.78; p = .01
Figure 7. Effect of Rationale and Reference Price on Attitude Toward the Advertised Offer
5.5
store
5.0
Ref. Price
Credibility
4.5
NO Ref. Price
4.0
No Rationale
Inventory Rationale F=3.71;
Figure 2.
Volume Rationale
p=.O27
Effect of Rationale and Reference Perceived Credibility of the Store
Price on
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To further analyze the impact of rationales within each reference price condition, we first divided the subjects into two groups: those who were presented with a reference price, and those who were not. Then, within each reference-price group, we conducted 2 X 3 analyses of variance, analyzing the effect of rationale and offer price. This analysis was first performed on all three dependent variables simultaneously, using MANOVA. This analysis revealed that in the no-reference-price condition, rationale did not have a significant impact [F = .98, p = N.S.]. However, among subjects exposed to the reference price, rationale did have a significant impact [F = 2.20, p -C.05]. When individual ANOVA’s were performed on the three dependent measures, it was found that, among subjects to whom the offer price was presented as a reduction from a higher regular price, the rationale had a significant impact on the attitude toward the offer (F = 5.12, p < .Ol), the perceptions of the deal’s attractiveness (F = 4.75, p -c .OS) and the credibility of the store (F = 3.30, p < .05). In all these cases, the volume rationale received the most favorable scores. To further explore reactions to the rationale treatment, we examined subjects’ openended responses to the ads. As mentioned earlier, each subject was asked “Why do you think the T-shirts were being promoted?’ The 129 subjects generated a total of 203 comments in response to this question. These comments were then categorized as either “clearance” explanations (implying the store was trying to unload “problem” merchandise; examples: “They were out of style/season”; “They weren’t selling well”) or “promotional” explanations (implying the store was simply promoting an appealing item to generate sales and store traffic; examples: “Because T-shirts are very popular;” “To attract customers to the store ...“). The responses were coded independently by two judges who were blind to both the treatment group of the cases they coded and to each other’s coding. These two judges initially produced identical codings on 197 of the 203 comments, for a 97% agreement. After discussing the remaining 6 cases, they reached consensus on these as well. Of the 203 comments, 112 were coded as “clearance,” 88 as “promotional,” and 3 as miscellaneous/irrelevant. As a first step in analyzing these data, each subject was given a score indicating the proportion of his/her comments which were clearance related. For example, if all of a subject’s comments were coded as clearance, s/he was given a score of 1.O; if all were promotional, a score of 0.0; if a subject’s comments were mixed, this suggested some ambivalence, and the subject received a score between 0 and 1 (e.g., a subject who offered one clearance and one promotional explanation would be scored .50). To determine whether subjects interpreted the store’s motivation differently depending on the rationale treatment they received, we compared the means of the three groups. Subjects exposed to the inventory rationale gave a higher mean proportion of “clearance” explanations for the sale (X = .72) than did subjects exposed to either the volume rationale (X = .52) or the no-rationale control condition (X = .37). To test the statistical significance of these differences, we calculated an overall F statistic to determine if there were any significant inter-group differences, and then conducted post hoc tests (using the Scheffe test, with alpha set at .05) to determine which specific inter-group differences accounted for an overall significant F. The overall F was statistically significant (F = 6.836, p c .Ol). The post hoc comparisons revealed that subjects exposed to the “inventory” rationale made a significantly higher proportion of “clearance” attributions than did either of the other two treatment groups; none of the other inter-group differences was statistically significant.
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Thus the results of this analysis are perhaps not too surprising: Subjects who were told by the retailer “We don’t want to count it, so you save” were more likely to infer that the store was trying to unload hard-to-sell merchandise than were subjects exposed to either of the other two rationale treatments.
DISCUSSION The results of this experiment suggest several things. First, they suggest that advertising a product at a much lower than expected price (i.e., 50% lower vs. 25% lower than perceptions of the market-wide non-promoted price for the product) enhances the attractiveness of the advertised offer without diminishing the perceived trustworthiness of the retailer. Thus consumers seemed to accept that some retailers can offer the product at substantially lower than average prices. These findings are consistent with our first hypothesis and with previous research (Lichtenstein, Burton and Karson, 1991). Second, the results suggest that, contrary to our second hypothesis, the inclusion of the $20.00 regular price did not have a main effect on consumers’ perception of the offer or the store. A key to understanding this somewhat surprising finding may be found in the work of Biswas and Blair (1991). These authors criticize past research on reference prices, stating that (p. 2) “... all of the researchers have implicitly assumed that external reference prices raise perceptions of saving...” Biswas and Blair argue (and their data seem to confirm) that, to be effective, an external reference price must raise consumers ’ priorperceptions of market-wide prices, thereby reducing the perceived “shop-around” savings that would result from purchasing the product elsewhere. When we view our reference price manipulation in this light, its lack of main effects becomes more understandable. As mentioned earlier, our $20.00 reference price was based on pretests in which subjects were shown the T-shirt without a price and asked to estimate the typical market-wide non-promoted price for the product (i.e., “the typical price charged by local retailers”). The median response was $20. Thus the inclusion of a $20 external reference price in the ad presented subjects with little new information regarding market-wide prices. However, the inclusion in the ad of a $20 “regular” price may contain some informational value, since it informs consumers that the offer price represents a deviation from the customary pricing ofthisparticulur store. The implications of this issue are discussed below. The most novel manipulation in our experiment was the inclusion of price rationales in the retail advertisements. Rationale did not have a main effect; however, when the offer price was presented as a reduction from this particular store’s regular price, consumers’ response depended on the rationale the retailer offered for this price reduction. When the reduced price offer on the T-shirt was accompanied by the volume-purchase rationale, consumers responded more favorably (in terms of attitude toward the offer, perceived value of the deal, and perceived retailer credibility) than when the offer was accompanied by either the inventory-reduction rationale or no rationale at all. Thus the announcement of a price reduction (in which the retailer deviates from its customary or normal pricing behavior) appears to “call for an explanation” to a greater degree than an every day low price. Consistent with this interpretation, Kahneman et al. (1986)
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suggest that the seller’s customary price is viewed as the standard or “reference transaction,” which requires no explanation to justify its fairness or reasonableness; however, when the seller deviatesfrom r/rat reference transaction, consumers will examine the contextual cues to judge the fairness of the new price. In fact, most price rationales that appear in retail advertising (as evidenced by the survey of newspaper ads mentioned in the Method section) are used to explain some special event prompting a deviation from the store’s normal pricing-e.g., an anniversary sale, end-of-year clearance, midnight madness, etc. This was certainly true of the two rationales used in our study, which announced (respectively) a special large volume purchase and an impending merchandise inventory count. Thus it may make sense that these rationales have most impact on customers trying to interpret a deviation from the seller’s normal pricing practice. It should be noted that, while the inclusion of the volume rationale improves consumers’ perceptions of the reference price ads, the nature of this improvement differs somewhat between the two dependent variables shown in Figures 1 and 2. The combination of the reference price and the volume rationale results in the highest attitude toward the offer of any of the experimental conditions. This is consistent with the finding of Kahneman et al. (1986) that consumers are positively disposed to price changes based on changes in seller costs. In the case of store credibility, the volume rationale also enhances the effectiveness of the reference price ad; but in doing so merely raises the credibility of the reference price ad to approximately the same level exhibited for the no-reference price ads. Thus the volume rationale appears to at least neutralize some of the potential negative store credibility connotations of “discount” pricing, that have been mentioned by past authors (Agins, 1990). In summary, the central finding of this paper is that consumers’ perceptual responses to an advertised price reduction can be influenced by the rationale the advertiser provides for this reduction. This finding has some practical implications for retailers, suggesting that shoppers may be more willing to accept the legitimacy of an advertised price reduction if the retailer provides a plausible explanation of why this reduction is being offered. Specifically, our findings suggest that a rationale that implies the retailer is passing lower costs on to the consumer (e.g., through a volume discount) is particularly effective in enhancing consumer attitudes toward a reduced-price offer, and the store that advertises it. However, further research is needed into the relative effectiveness of specific rationales. In general, our study points to several important avenues for future research on retail price advertising. First, future research should examine whether the impact of price rationales is moderated by the ZeveZof the reference price included in the retail ad. In this experiment, the advertised “regular” price was set at the median of consumers’ perceptions (based on pre-tests) of the “... typical price charged by local retailers ...” for the product when it was not being promoted. Yet an advertised reduction even from such an apparently “‘plausible” reference price seemed to elicit some consumer skepticism toward the retailer, unless this reduction was accompanied by an appropriate rationale (see Figure 2). This finding goes beyond those of past research (Urbany et al., 1988) which has mainly addressed the credibility problems created by exaggerated or implausible reference prices. Future research should examine the pervasiveness of consumer skepticism toward more moderate reference prices. Furthermore, it would be interesting to examine whether the inclusion of various price rationales can reduce consumer skepticism of even exaggerated external reference prices
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such as those discussed by Urbany et al. (1988) and Lichtenstein, Burton and Karson (1991). In addition, future research should examine the interaction between the particular rationale that is used and the context in which it appears. One such contextual variable worthy of further examination is store type. Biswas and Blair (199 1) note that consumers’ perceptions of a given price reduction can vary depending on the type of store placing the ad (e.g., whether it is a department store or a discount store). It may be that the plausibility of certain price reduction rationales varies depending on the type of store. For example, the volume rationale would seem likely to be more plausible for a large mass-merchant than for a smaller store. The present study produced some unanticipated findings that suggest issues for future research. First, the rationale manipulation did not exhibit a main effect, but rather interacted with the presence of an explicit price reduction claim. The authors have attempted to provide a plausible explanation for this interaction. However, future research should attempt both to replicate it, and to explain it more fully. Second, this interactive effect of rationale was observed for perceived store credibility and attitude toward the offer, but not for perceptions of the value of the deal. While the factor analysis did suggest that “offer” and “deal” were two distinct constructs, they seem very similar conceptually, and it is not obvious why the rationale manipulation would affect one and not the other. A fuller explanation of these unanticipated results might be greatly aided by examining the cognitive processes through which retailer-provided price rationales affect consumer perceptions of the advertised offer and the store itself. The work of Kahneman et al. (1986) may be especially helpful in examining these processes. Their research suggests that consumers tend to accept a retailer’s customary pricing policy as a “reference transaction,” that has been tacitly accepted by both the seller and the buyer, and does not require justification; however, Kahneman et al. suggest that once the seller deviates from this reference transaction, consumers examine cues regarding the reason for this deviation, before evaluating the “fairness” of the new price to consumers. In the research of Kahneman et al. (as well as our own) subjects’ responses were measured primarily through structured attitude scales, completed after exposure to the price-situation stimuli. However, an understanding of the consumers’ cognitive responses during exposure to such stimuli might be enhanced by the use of concurrent process tracing methods, including verbal protocol analysis, and measures of response time. From an analysis of verbal protocols, for example, researchers could more directly examine the extent to which consumers spontaneously make judgments of retailer credibility and price fairness when examining price changes, as well as what heuristics they use in making such judgments, and how the presentation of retailer-provided rationales affect their cognitive responses. This would appear to be a fruitful avenue for future research on consumers’ response to price-oriented advertising. Agins (1990) has noted that the recent explosion of retail price discounting has left many consumers “. .. perplexed about pricing tactics and wondering whether they are really getting bargains.” This study suggests one method retailers may use to help consumers make sense out of advertised prices and perhaps bolster their confidence in both the legitimacy of the bargain and the trustworthiness of the merchant offering it: price “rationales.” We hope this study stimulates further research on this specific retail advertising tactic, and the ways in which consumers interpret retail price advertising.
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Rajendran, K.N. and Gerald Tellis. (1994). “Contextual and Temporal Components of Reference Price,” Jounrol ofA4urketing, %(January): 22-34. Schwadel, Francine. (1990). “Store’s Concept of ‘Sale’ Pricing Gets Court Test,” Wall Street Journal, May 15, B-l, B-6. Urbany, Joel, William Bearden and Dan Weilbaker. (1988). “The Effect of Plausible and Exaggerated Reference Prices on Consumer Perceptions and Price Search,” Journal of Consumer Research, 15(June): 95-110.